16 Admap • April 2009 © World Advertising Research Center 2009

FOR ALL THE BUZZ that word-of-mouth (WOM) marketing has gar-nered in the past decade, one might

think it is part of every company’s mar-keting strategy and budget.

The promise of WOM initiatives hassaturated the consciousness of brand mar-keters, who see a relevant, more targetedreach leading to more efficient use of mar-keting dollars, a virtual focus group pro-viding commentary about a company’sproducts and services, or chances to betterengage customers in dialogue.

But there are obstacles to greater ac-ceptance of WOM marketing. Theseinclude inertia (nobody gets fired forspending on a TV ad), lack of predict-ability in results, fear of losing control ofthe brand’s message and a perceived lackof reliable, widely accepted ways to meas-ure the impact and value of WOM.

First, let us define ‘word of mouth’.WOM involves everyday people sharinginformation about companies, brands,products and services, and/or visually dis-playing their brand preferences in bothonline and offline venues.

According to the WOM MarketingAssociation (WOMMA), WOM market-ing is defined as giving people reasons to talk about companies, brands, productsand services, and making it easier for those conversations to takeplace. It is a strategywhere brands lev-erage both con-sumer-to-consumerand marketer-to-consumerinteractions in thecontext of a market-ing objective.

The outsourced WOM marketing in-dustry in the US has grown at double-digitrates each year from 2001 to 2007. In 2007,WOM marketing expenditures grew to$1.35bn (Figure 1).

PQ Media was estimating WOM spendin the US to reach $1.82bn in 2008, but thisis now thought to be an optimistic forecastdue to the economic downturn in the sec-ond half of the year, according to Dr LeoKivijarv, vice-president of research at PQ

Media. He still thinks there will be doubledigit growth in 2008, but to bring someperspective, even the $1.82bn figurewould only represent four-tenths of 1% ofall marketing spend in the US.

To date, the industry has not conductedan authoritative perception study of howbrands and agencies view WOM market-ing or allocate resources.

“There is strong brand interest inWOM as a concept,” says Stuart Sheldon,partner at experiential and WOM mar-keting agency Escalate, “but there is noconsistent response in terms of com-mitting funds to pursue it as part of a marketing plan.” Sheldon attributes this in part to the fact that WOM meas-urement is not widely understood, muchless implemented. As a result, WOM maybe pigeonholed as a test-and-learn or in-

novation spend, some-times searching for, butnot always finding, abudget.

When WOM does find abudget, funds can be allocat-

ed from marketing, pub-lic relations, promo-tions, events, customerservice, digital, interac-

tive, consumer activation,CRM, and research and innovation budg-

ets. Although PQ Media only tracks out-sourced expenditures, many firms, suchas Nokia and Quicken Loans, also devoteresources to internal WOM initiatives(see case studies, page 18).

Other companies track key perform-ance indicators such as reach, convers-ation volume and lifts in brand advocacy.For this, they rely on social media mon-itoring, as well as interview and survey-based methods.

So how can firms get concrete meas-

Is talking getting you anywhere?Measuring WOM marketing

focuswordofmouth

Dr Walter Carl, ChatThreads, compares new models for measuring word-of-mouthROI, such as Conversation Value, Momentum Effect and Net Promoter Economics

Page 23

Influencers are essential in driving affinity with the brandEd Keller and Brad Fay, Keller Fay Group

WOM is about empowering consumers in shaping your brandIvan Palmer, Wildfire

Page 26

Word-of-mouth marketing needs morethan lip serviceGeoff Gray, Naked Communications

Page 30

Push WOM frontiers bytapping into passions ofbrand advocatesMolly Flatt, 1000heads

Go to www.WARC.com/admap-wordofmouth for FREEfurther reading (free access limited to April 2009)

Page 16

Is talking getting youanywhere? MeasuringWOM marketingWalter Carl, ChatThreads

2002 $179m

2007 $1,350m 49.8% CAGR

2008* $1,817m 34.6% growth *Estimated

Source: PQ Media WOM Marketing Forecast 2007-2011

FIGURE 1

WOM marketing spend in US

Page 20

ADM Apr 16-19 FOCUS Walter Carl.qxd 4/6/2009 10:43 Page 16

April 2009 • Admap 17© World Advertising Research Center 2009

are also commonly used to measure theeffectiveness of WOM marketing init-iatives. This might involve polling peopleto understand how a campaign affectedtheir purchase decision or to measurebrand advocacy.

Net Promoter modelsOne popular brand advocacy approach isloyalty metric provider Net Promoter.Based on consumer responses to the ques-tion ‘How likely are you to recommend[brand] to a friend or colleague?’, a Net Pro-moter Score (NPS) is calculated based onthe percentage who are very likely torecommend (promoters) minus those un-likely to recommend (detractors). Somecompanies use NPS as part of campaign-specific measurement, especially by liftsin scores pre and post-campaign. Othersuse Net Promoter as part of ongoing track-ing studies to understand the drivers ofpositive and negative WOM over time.

urement of their WOM campaigns? Oneway is through the monitoring of socialmedia. For a while, savvy companies haveused technologies that trawl the internetfor unfiltered, naturalistic consumermentions of their brands to detect actualand potential crises in real-time.

But these ‘crawlers’ are also able toidentify, listen to and engage key influ-encers, understand consumer desires andtrends, and track the effectiveness of arange of marketing initiatives.

For campaign tracking, most compa-nies rely on measuring volume of on-topic references as well as sentiment. Liftsin volume from pre-campaign scores to

post-campaign, as well as positive senti-ment, are taken as evidence of campaignsuccess. Companies also use conversationshare of voice metrics that indicate thenumber of brand mentions comparedwith their competitors.

But if companies rely just on volumeand sentiment tracking, marketers can-not close the loop on conversion out-comes, such as trial and purchases. Anoth-er drawback is that publicly-availableonline WOM is not necessarily represen-tative of all WOM. When influential blog-gers were engaged for a new technologyproduct launch by Matchstick, WOMmarketing agency ChatThreads foundthat 35% of the influencers’ conver-sations took place on blogs, discussionboards and social networking sites, whilethe remainder were face-to-face (50% ofthe total), phone, email, and instant ortext messaging.

Interview and survey-based methods

Dr Walter Carl is the founder andchief research officer at ChatThreads,

an independent word-of-mouthmeasurement and analytics company.He is chairman of the Word-of-MouthMarketing Association's Measurement

and Research Council.walter@chatthreads.com

Research by ChatThreads found that 50% of influencers’ conversations were face-to-face, while 35% took place online.Opposite: Dunkin’ Donuts achieved an uplift in sales after using WOM techniques to promote a latte drink

ADM Apr 16-19 FOCUS Walter Carl.qxd 4/6/2009 10:44 Page 17

18 Admap • April 2009 © World Advertising Research Center 2009

A more recent development is tounderstand the financial value of promot-ers and detractors, or what Satmetrix, co-developer of NPS, calls ‘Net Promoter Eco-nomics’. This approach combines ‘buyereconomics’ (how much a customerspends with the company) with ‘referraleconomics’ (the amount of new businessgained or lost as a result of customers’WOM). In the B2C computer hardwareindustry, Satmetrix found that nearly allof the revenue from detractors’ purchaseswas erased by revenue lost from negativerecommendations. In contrast, promoterspurchased more than detractors andbrought in new business from their posi-tive recommendations (Figure 2).

But there are limitations to advocacyframeworks such as Net Promoter. Theseinclude a loss of precision by not usingmulti-dimensional measures, recommen-dation intentions not necessarily translat-ing into actual recommendation behav-iours, and mixed results when trying tocorrelate NPS with financial metrics.

AccountabilityAround 2006-2007, the industry started tosee more calls for accountability and ROImetrics. According to Dr Kivijarv: “Brandsand agencies were saying ‘if you want ourdollars, you have to use consistent metrics

that show we have either got sales lifts, ormore people coming into the store, orhigher brand recognition’.”

Companies such as BazaarVoice, asocial commerce technology solutionsprovider, and BzzAgent, a WOM market-ing and media company, responded.BazaarVoice showed its client, Petco.com, a 72% increase in conversions afterinstalling a tool that allowed customers toask and answer each other’s questions atthe online retailer’s site.

When Dunkin’ Donuts engaged 3,000

volunteer advocates to talk up a latte bev-erage, BzzAgent was able to demonstrate a26% lift in category sales compared withcontrol markets that experienced only an8% increase.

As marketers started to understandhow their WOM activities impacted thebottom line, there was a change in howthey viewed WOM.

John Bigay, vice-president of marketingat BzzAgent, explains: “a couple yearsback, most brands were looking at WOMas the new thing and buying out of testbudgets. But now we are seeing com-panies integrating WOM more complete-ly into their marketing mix. WOM isemerging as a line item.”

For Bigay, the next step is to help tomake that integration easier.

One way to do this is to use modelswith which brands are already familiar.The Hudson River Group and MarketingManagement Analytics (MMA), whichprovide marketing mix modelling solu-tions, have seen more clients asking forWOM to be incorporated into their mod-els. According to MMA senior vice-presi-dent Douglas Brooks, when WOM has apositive effect in year-on-year changesin business, the impact can range from2% to 7%. His company has seen ROIs as high as $5 for every dollar spent.

focuswordofmouth

B2C computer hardware industry

FIGURE 2

Customer worth

$4,000

$2,000

0

–$2,000

Source: Satmetrix. ‘Net Promoter Economics: The Impact of Word of Mouth’

$816

$1,818 $1,615 $1,457

–$1,352

All Quicken Loans’ in-house initiatives emerge from the marketingdepartment. Objectives include listening and learning from onlineconversations, interacting with people as a way to build trust andsolve problems, putting a human face on the company, and having astronger presence in organic search engine results. With suchobjectives, it is not surprising that the firm maintains a number ofblogs (such as www.quickenloansinsider.com) and is active withonline ratings and reviews, Epinions, Facebook, Yahoo! Answers,YouTube, Twitter, MySpace, Flickr and Zillow.

It recently launched Quizzle (www.quizzle.com), a free website thatallows consumers to understand their home and overall financialsituation, which rapidly grew to 125,000 members with noadvertising budget. The strategy relied heavily on reaching out tobloggers, especially those who specialise in finance, and providing ameaningful solution for registered users.

These WOM initiatives are labour-intensive and the primaryexpenditure is head-count. “We don’t allocate budget to WOM,”admits Matt Cardwell, director of web marketing for Quicken Loans,“and we don’t use an outside agency. Instead, we make WOM whatwe do every day.”

Initially, Cardwell’s team at Quicken Loans was unable to providea direct connection between their WOM marketing activities and newleads. But they gained traction in the organisation by tying theiractivities to search engine optimisation. Relevant content is the maindriver of organic search, says Clayton Closson, website contentmanager for Quicken Loans: “This is the one place in a metrics-intensive organisation where we agree we’re not going to be able tomeasure everything,” explains Closson. “But we know that the morepeople who talk about us, the higher our search rankings.”

Nokia’s initiatives emerge out of many groups. Thecommunications team has started Nokia Conversations(www.nokia.com/conversations), a social media communicationssite that involves blogging and podcasting. The handset giant’smarketing team has a service called WOM World (www.womworld.com), which provides news, comments and feedback on all thingsNokia. The research and development department has NokiaBeta Labs (http://betalabs.nokia.com), a community-driveninnovations site, whose purpose is to share new product ideasand receive feedback in return.

Nokia also supports the S60 Ambassador programme(www.ambassadors.s60.com), which gathers feedback from enthusiastic fans of the S60 software platform andencourages them to spread theirhonest opinions to their familyand friends.

According to DanShugrue, the firm’s headof consumerengagement, the bigopportunity with theseinitiatives is “tobetter serve realcustomer needsand to becomebetterconnected with ourcustomers”.

Case study: Quicken Loans Case study: Nokia

■ Referral economics

■ Buyer economicsTo

tal c

usto

mer

wor

th

Promoter

AverageDetractor

ADM Apr 16-19 FOCUS Walter Carl.qxd 4/6/2009 10:44 Page 18

wordofmouthfocus

April 2009 • Admap 19© World Advertising Research Center 2009

Brooks cautions, though, that there is alarger range of error when calculatingWOM’s impact, compared with calculat-ing TV’s impact, for example. Marketersmay have to settle for what current mod-els can provide, rather than excludingWOM entirely.

A smaller, but growing, percentageof companies are modelling WOM withagent-based models (ABM), offered by companies such as Icosystem. ABMuses sophisticated computer simulationsthat allow marketers to answer questionssuch as: “What happens if I combine tele-vision with out-of-home and a WOMinitiative?” or: “What happens if my com-petitor launches a product three monthsafter ours?”

Icosystem developed an ABM to help

US health insurance firm Humana toanticipate how consumer WOM behav-iour would affect the launch of complexnew insurance plans.

Other ROI models are designed tounderstand the bottom-line impact ofWOM tied to specific marketing cam-paigns, such as Conversation Value andthe Momentum Effect (see panels, aboveleft and right).

No-one is under the illusion that 2009will not be a difficult year in the market-ing and advertising industry – perhapsone of the weakest for outsourced expend-itures going back to the 1930s, accordingto PQ Media.

But this climate represents a strategicopportunity for the WOM marketingindustry, according to John Bell, manag-

ing director of 360 Digital at Ogilvy PR. He says: “While some marketers are

altruistically-driven to build stronger,more enduring customer relationshipsthrough WOM initiatives, more andmore also recognise that WOM is veryefficient, especially when integrated withadvertising and PR.”

As Kitty Kolding, chief executive ofWOM marketing platform House Party,puts it: “In the current economic climate,everything is in play. Brands are lookingfor systems and processes that work, andwithin structures that allow them tounderstand what they are getting fromtheir WOM marketing.”

More on word-of-mouthat www.warc.com

Developed by WOM measurement andanalytics firm ChatThreads, ConversationValue is an emerging metric that shows thebottom-line impact of each consumerconversation that can be attributed to aparticular marketing initiative. The endresult is a currency value, such as $1.21,which is interpreted as: “Each time aconsumer has a conversation about BrandX with a new person reached, thatconversation contributed $1.21 to BrandX’s bottom-line.”

Conversation Value combines acustomer lifetime value model with a WOMreferral value model. Inputs for purchaseand referral behaviour are collected basedon self-reports from direct programmeparticipants, as well as their conversationalpartners. ChatThreads has used the modelto calculate the impact of WOM for

experiential, influencer, sampling, andadvocacy programmes based in NorthAmerica and the UK, spanning a range ofcategories, including household products,packaged food, personal care,pharmaceuticals, and technology.

Figure 3 shows an example calculationof the Conversation Value for a new CPGproduct launch involving 5,000 brandadvocates. Despite the product’s low retailprice (under $5), the programme shows astrong ROI (92%), Conversation Value($0.51), and cost per conversion ($1.36).

Using the Conversation Value frame-work, companies can track the impact ofconsumer WOM over time and decide howbest to scale their programmes. Resultscan also feed into marketing mix modelsto understand specific WOM initiatives aspart of the integrated mix.

The Momentum Effect occurs when peoplepass along brand-related content to a peer,or use a brand as a reference point instories of who they are.

Marketing Evolution first measured theMomentum Effect in 2007 for twocampaigns: Adidas and Electronic Arts.Both involved branded online communitiesand content downloaded to people’sMySpace profile pages. To isolate theunique value created by the B2C and C2Cinteractions, researchers used a designinvolving multiple test-control groups andpre/post-test measures. Data was collectedfrom behavioural tracking and onlineintercept surveys. The campaigns, and howthe methodology performed, were impres-sive: the average costs to influence thepurchase intent of each person, based onthe B2C advertising alone, were $1.19 (EA) and $1.87 (Adidas). When theresearchers added in the C2C MomentumEffect, the average cost to influencepurchase intent for each person droppedto $0.34 (EA) and $0.40 (Adidas). Exceptfor unaided awareness, which was drivenby advertising, Marketing Evolutionconcluded that over half of the valuecreated for the brands was driven by the Momentum Effect.

The methodology has been replicatedhalf a dozen times in social networks,according to Rex Briggs, chief executive ofMarketing Evolution. Briggs sees a hugesynergy in combining WOM withadvertising and feels there should be aformal line item on more marketers’budgets: “WOM ought to be a specificinvestment that people put time andmoney around. This will allow them tothink strategically about what they expectthe effort to do,” Briggs explains.

Number of programme participants 5,000

Overall profitability (‘money in’) $383,714Total programme costs (‘money out’) $200,000ROI (with Lifetime Value Purchases) 91.9%ROI (without Lifetime Value Purchases) –27%

Reported purchases (without Lifetime Value Purchases) 146.545Cost Per Conversation $1.36

Conversational Reach 747,537Conversational Value $0.51Cost Per Conversation –$0.27Net Conversation Value £0.24

Conversation Value is how muchmoney Brand X made (or lost)each time consumers talked aboutthe product with a new personreached in this programme

Cost per Conversation is theprogramme costs divided by thenumber of conversations with uniquepeople (Conversational Reach)

Net Conversation Value is theamount made (or lost) for eachconversation after programmecosts (on a per conversation basis)are deducted

Source: ChatThreads

Walking through the model

FIGURE 3

Conversation Value and Cost per Conversation for Brand X

Conversation Value The Momentum Effect

ADM Apr 16-19 FOCUS Walter Carl.qxd 4/6/2009 10:44 Page 19